Finding the Silver Lining in Research in Motion's Earnings

Okay, so Research in Motion (RIMM) gave some absolutely horrendous guidance recently, trimming earning estimates as much as 42% going forward. Ouch! We'll say it again, OUCH!

Even if we take the worst case scenario for Research in Motion, all is not lost. A few days ago I said that RIMM could be sold for as much as $49. Is that now out of the question? I say no. RIMM's new forward p/e is now 9.3. I even did the math for you $49 ÷ $5.25. Is a tech company like RIMM trading at 9 times forward earnings with most of the bad news now known a bad investment? You can decide that one. RIMM is still sitting on $4 a share in cash, but we'll have to actively monitor RIMM's future free cash flow

No one is going to say that today is good, but it is certainly not as bad as it may appear for those looking at the stock as a deep value play and possible takeover candidate. Some of of the bad news was already baked into the stock price as we've been watching it drift lower these past few weeks. It is very possible that there is further downside, but we'll try to remain positive that this stock is in capitulation mode and after market digestion, Research in Motion should be able to find a nice working base. We'll now have to see if it can hold the $28 support level that I spoke about on my interview on BNN. After $28 we could see the stock go as low as $20 a share -- I would have to say at $20 with $5.25 in earnings, RIMM would trade at 3.8 times future earnings and a high likelihood that the price to revenues will trade well under 1. Granted, a lot can happen between now and then and we'll need to monitor RIMM's future free cash flow.

Staff reduction is another sad and unfortunate consequence of the guidance, but this gives management reason to focus on cost cutting efforts until the 2012 launch of the QNX OS. Research in Motion now must make some hard choices and figure out how to get back on track. The dual CEO executive corporate structure does not seem to be working at this point -- which is just one the many hard choices that we are talking about. RIMM may very well drift lower until there is some kind of catalyst. If one or both of the CEOs were replaced that event could be the event many are looking for

Today's free-fall only makes the case stronger that RIMM is most likely not going to be a stand alone company in the near future! Right or wrong, I still stand firm that they will be taken over in the not to distant future. I am still in the camp that Microsoft (NASDAQ:MSFT) makes the most sense, but after reading how Apple (NASDAQ:AAPL) may want to get in the corporate market -- I have left that door slightly ajar.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.